In general, the only thing that can cause a sustained increase in the rate of inflation is:
A)a high rate of growth in the supply of money.
B)a significant increase in unemployment.
C)a decrease in real GDP.
D)an increase in federal income taxes.

Question

In general, the only thing that can cause a sustained increase in the rate of inflation is:
A)​a high rate of growth in the supply of money.
B)​a significant increase in unemployment.
C)​a decrease in real GDP.
D)​an increase in federal income taxes.

Quizplus · Accepted Answer

The quantity theory of money suggests that an increase in the supply of money leads to an increase in prices. Therefore, a sustained increase in the rate of inflation can only be caused by a high rate of growth in the supply of money. The other choices, such as increased unemployment, decreased real GDP, or increased federal income taxes, may have short-term effects on inflation, but they cannot sustainably increase the rate of inflation over a longer period of time.

In General, the Only Thing That Can Cause a Sustained